STOCKS RALLY: Here's what you need to know

Stocks rallied on Tuesday after doing nothing on Monday and sending the S&P 500 back to within about 50 points of a record high.

First, the scoreboard:

Dow: 17,713, +220, (+1.3%)

S&P 500: 2,076, +28.8, (+1.4%)

Nasdaq: 4,862, +96, (+2%)

WTI crude oil: $48.80, +1.6%

10-year Treasury: 1.865%

Housing

The housing market is a bit of a conundrum right now.

On Tuesday, the April report on new home sales showed sales rose 16.6% over the prior month to an annualized rate of 619,000 homes, the fastest pace since January 2008.

Ian Shepherdson, an economist at Pantheon Macroeconomics, said in a note Tuesday that this number tends to be quite volatile, but said this figure is, overall, consistent with increasing mortgage demand. Tuesday’s report showed the biggest gains came from the South, where new home sales rose to an annualized rate of 352,000.

The current supply of new homes also tightened dramatically to 4.7 months of inventory at the current pace of sales to 5.5 months.

“We continue to believe the drivers are in place to sustain the current housing market’s slow but steady growth,” the company said in a release.

“Interest rates remain low, the job picture continues to improve, home equity values are rising, supply remains constrained and the industry is still not building enough homes to meet the demand that current demographics imply are needed.”

So, if you can afford a more expensive home — Toll’s average selling price in the quarter rose 19% to $855,500 a home — then things are looking up: Toll Brothers is building for you. Also, the tight supply we’re seeing in the new home sales data is bullish for a homebuilder. The market’s tight supply is Toll’s future demand.

But on the other side, as we’ve written in recent months, the new “housing crisis” is, most simply, a lack of supply of starter homes. These are homes for younger families looking to move either out of their parents’ homes or from more expensive metro areas into a more affordable settings.

The accelerating pace of new home sales, however, indicates that not only are things likely to continue up and to the right for companies like Toll, the lower-end of the market might continue to get squeezed, either delaying homeownership or continuing to push rents higher. Or both.

Retail

Best Buy shares fell about 7% on Tuesday while DSW was off more than 11%.

But following these disappointing earnings was a chart from Torsten Sløk, chief international economist at Deutsche Bank, who outlined the real problem for malls and mall-style retailers that have traditionally depended on consumers buying clothes.

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